The World Trade Organization said on Wednesday it largely backed complaints by Japan and the European Union against a renewable energy programme in the Canadian province of Ontario.
The case has been closely watched because it deals with ``local content requirements'', where governments ensure their own firms get a guaranteed cut of big projects, and several similar disagreements could potentially be brought to the WTO judges.
The complainants had said that Canada's scheme discriminated unfairly against foreign companies.
China, which was a third party observer in the dispute, has already launched a challenge against the EU over renewable energy rules in Italy in Greece, alleging they discriminate against Chinese suppliers of solar power components.
Brazil, India, Indonesia and Nigeria have been criticised repeatedly in WTO committee meetings for having similar local content clauses in big infrastructure projects.
The WTO adjudication panel agreed Canada had broken some of the trade body's rules, but was split on the question of whether Ontario's scheme constituted an illegal subsidy that had disadvantaged importers.
But the panel offered a suggestion about how the Japanese and EU cases could have been framed to overcome their objections.
Canada, the EU and Japan all have the right to appeal.